About US Treasury Bond Funds

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When buying a U.S. government bond, it's advantageous to buy a variety of them through a mutual fund. Learn about the positive tax implications of buying bonds directly with help from a personal asset manager in this free video on the bond market and money management.

Part of the Video Series: Bond Market
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Video Transcript

I'm Roger Groh with Groh Asset Management. We're here to talk about today about buying U.S. government bonds, but buying a variety of them through a mutual fund. Remember, a mutual fund is where you own a little bit of a lot of different type of, in this case, U.S. treasury bonds. The advantage might be that you get a broad spread in terms of when those bonds mature, and just in case, you own a lot in case there are problems with any of them. I don't think that there will be, but it's always possible that that would occur. Last, there may be some positive tax implications for you to buy bonds through a mutual fund as opposed to a buying the bonds directly, the biggest of which is, the mutual fund may very well use leverage in order to increase the yield to you. Now, how you going to do that? Or how you going to determine the right bond to buy? Well, to buy a fund, you're going to have to go through your local bank or brokerage firm, or discount brokerage firm, and discuss their products that they offer with the person in charge of selling that product. It does make a big difference which one you buy, so be very specific. One note: in today's environment with interest rates at zero, bonds do very well when interest rates are going down, but they're at zero, so they're not going to go down anymore! The only way that they're going to go is up. When they go up, bonds probably will not do well in terms of performance. As a result, if I'm buying bonds today, I'm buying them short, meaning maturing in months or a year, maybe, but not thirty years. If you own a thirty year bond, rates go up, you're going to get your head handed to you. So, I'm Roger Groh. That's a little bit about buying bonds using mutual funds, and thank you for spending a few minutes with me.

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